By Sovinda Po and Veasna Var

Cambodia’s Debt: Prudent to Look for Diversified Sources

Recently, Cambodia’s Ministry of
Finance and Economy released its Cambodia Public Debt Statistical
Bulletin,
adumbrating the country’s debt situation. According to the bulletin, the concessional
loan agreements Cambodia signed with its development partners — both bilateral
and multilateral — added almost USD 8.3 billion from 1993 until the end of
2016. The report also notes that the bilateral loans of USD 5.3 billion consist
of USD 3.59 billion from China, USD 900 million from Japan, USD 519 million
from South Korea, USD 124 million from France, USD 86 million from Thailand, USD
75 million from India, USD 44.5 million from Vietnam, and USD 7.85 million from
Malaysia. The Cambodian national debt is about one third of the total GDP. Notably,
86.6 percent of this aggregate loan goes towards infrastructure building.

In addition, the
bulletin claimed, “Based on international best practice, therefore, Cambodia’s
public debt remains sustainable and low risk of debt distress.” In tandem, as
quoted in the report, Aun Pornmonirath, the Minister of Finance and Economy,
stressed that the loans had to be for the most important sector fostering
sustainable growth and augmenting productivity. He elaborated further that the
loans had to enmesh transparency, accountability, efficiency, and high
effectiveness. To note, the
Royal Government of Cambodia has disbursed USD 546 million from
its development partners — of which 69.85 percent, or USD 381.89 million, comes
from bilateral partners and 30.15 percent, or USD 164.86 million, comes from
multilateral partners.

The minister’s statement
has been echoed by some Cambodian scholars, who comment that the Cambodian debt
situation is manageable. Chan Sophal, director of the Centre
for Policy Studies, states that “the level of debt currently is not a concern
if compared to other countries in similar stages of development. With
increasing revenue, mobilization and exports, Cambodia’s capacity to service
debt has also increased significantly.” While encouraging Cambodia to borrow
more loans which are effective and efficient to fuel future growth and
development, he added that “Cambodia still needs a lot of more infrastructure
in priority areas such as reservoirs and irrigation systems, roads and bridges.”

However, even with all
the positive perceptions in place that the debt situation is not prone to turn
the country backward both economically and politically, one should not fully
subscribe to these notions without taking proactive measures to tackle the
unpredictable backlash which could potentially derive from debt. One of the precarious
issues swirling around the Cambodian debt situation is the substantial amount of
debt — about USD 3.59 billion — that Cambodia owes to China, making it the
largest creditor, nearly four times bigger in size than Japan.

Cambodia should consider
borrowing from multilateral donors like the World Bank, the IMF, and the ADB.

When it comes to dealing
with the Chinese loans, Cambodia should be very precautious and take other countries’
experiences into critical consideration before further borrowing from China. The
perfect example is the Sri Lankan case. Given the slow economic growth and the
massive pile of unresolved debt, the Sri Lankan government decided to convert
state property into equity to pay off its debt owed to China — examples of
which include the Hambantota port with a 99-year lease given to China, and
Mattala Airport granted to Chinese firms to take control because of its
expensive operation. Looking further afield, Venezuela has been struggling to
service its debt to China and the way it has done so is to sell its oil to
China even though the government desperately needs cash to run the country.

In the case of Cambodia,
as many scholars have warned, China’s
influence has grown as its loans have increased, leading the Cambodian
government to make strategic decisions in favor of China. In this respect, some
recent decisions the Cambodian government has made are seen as having been
influenced by Chinese loans and especially growing Chinese aid in the kingdom.
These include the blocking of the joint communiqué in the 2012 ASEAN Summit when
Cambodia was the chairman of ASEAN Summit Meeting; the blocking of any
reference to the South China Sea disputes in the joint communiqué of the 2016
ASEAN Summit; the postponement of the Angkor Sentinel, a joint military
exercise with the US; the cancellation of the US Seabees aid program, known as
the US Naval Mobile Construction Battalion; and the banning the Taiwanese flag
from being hoisted in the Cambodia.

The prudent option for
the Cambodian government to pursue is to diversify its sources of funding. While
the interest rate of Chinese loans is high, Cambodia should consider borrowing from
multilateral donors like the World Bank, the IMF, and the ADB. While the loans
from these international institutions are attached with conditions like establishing
the rule of law, accountability, and transparency; and that they have long waiting
times for approval; they are worth waiting and going for. This is because the conditions
attached with these loans are very helpful for combating the rampant corruption
in the kingdom, and will give a new hope for the Cambodian people at the
grassroots level that they will enjoy the fruits of these loans. Furthermore,
the conditions also enable the people and non-governmental organizations (NGOs)
to keep an eye on how these loans are being utilized, and consequently to
provide feedback to the government on how effectively and efficiently these
loans are being used. Such actions will contribute towards the country’s
development.

In addition, there are
several domestic issues that Cambodia should tackle to gain greater
international support. These issues include the elimination of corruption,
cronyism, and forced evictions; the protection of human rights; and free and fair
elections. Moreover, Cambodia’s foreign policy has to be seen as neutral
because it is important for Cambodia to balance the growing Chinese influence
in the kingdom. The Cambodian government should be aware that the US has rejected
its request to cancel its war debt of around USD 500 million — which most
scholars have labelled as “dirty” and “blood stained” — because the US sees Cambodia’s
foreign policy as not being independent. If Cambodia’s foreign policy is seen as
independent and neutral, the US is likely to cancel the debt — this USD 500
million can help Cambodia further fuel its development.

About The Author

Sovinda Po is a Masters student in International Relations with an emphasis on Contemporary China Studies at School of Advanced International and Area Studies, East China Normal University, Shanghai, China.Veasna Var is a PhD Candidate in the Program in Political and International Studies at the University of New South Wales at the Australian Defence Force Academy, Canberra.